Fund managers unite on trading cost standards

The Investment Association wants to standardise the way the costs of trading are analysed

By

Samuel Agini

February 13, 2017 Updated: 3:59 p.m. GMT

Fund managers overseeing around £5.7 trillion are putting their weight behind efforts to make it easier for investors to understand trading costs.

The Investment Association, which represents 200-plus buyside firms, has teamed up with FIX Trading Community, a global trading body backed by some of the world's largest banks, asset managers and trading venues, to provide input into a new how-to guide for buyside traders on cost disclosure.

It comes against a backdrop of increasing scrutiny from regulators into the opaque world of transaction costs in funds, which haven't been clearly disclosed to fund investors in the past.

The IA has contributed to FIX's reference manual and guide to best practice for transaction cost analysis, which is used in the industry to determine whether trades were executed in the most efficient way and at the best price.

The aim is to make it easier for investors, such as pension fund trustees, to compare trading performance across different asset managers. Even where they have the technical ability, at present they have to ask fund managers for raw transaction data in order to produce their own analysis of managers and funds, according to the IA.

Ross Barrett, capital markets specialist at the IA, told FN that the buyside is taking responsibility for itself by uniting around common standards. He said: "We want to be able to measure whether we did well against how everybody else is doing."

Equities form the initial focus of the IA's contribution to FIX's draft document. The IA and FIX plan to expand their work on transaction cost analysis to other asset classes over time.

The EU's revised Markets in Financial Instruments Directive, a shake-up of trading rules, and its Regulation on Packaged Retail and Insurance-based Investment Products, are both set to increase the importance of being able to explain costs of the trading process to clients and demonstrate best execution.

Meanwhile, the UK's Financial Conduct Authority is partway through a review of disclosure rules for workplace pension funds, including transaction costs.